Who will take care of my family if anything unfortunate happens to me? If this bothers you, ‘Life Insurance is the one and only answer’. Life insurance ensures financial security even when you are not around to take care of your family.
Have you thought about:
- What will happen to your dependents if something untoward happens to you?
- Where and how will your family live?
- How will they sustain?
- How will they fulfill their financial requirements?
- What will happen to your children’s education?
- What will happen to the loans you have taken?
If these questions bother you, the answer is – Life Insurance.
Life insurance ensures financial security to your family even when you are no longer available to take care of them.
Life insurance is a contract between the insurance policy holder and the insurer, where the insurer promises to pay a designated beneficiary a sum of money if something untoward happens to the insured person. The purpose of insurance is to provide the insured financial support as a replacement for your income in case of the eventuality. If you have adequate insurance and if such a situation arises during the specified term, your life insurance amount will make it possible for your family to have sufficient funds to take care of their basic responsibilities and remain financially self-sustained.
Life insurance is therefore a compulsory social security / risk management tool required by all persons. In addition to ensuring financial security life insurance also offers other benefits such as:
- Tax relief on income tax thereby lowering the tax burden for the insurance policy holder
- Encourages savings and helps financial planning for the future
- Life insurance policies can serve as securities for obtaining loans
How much insurance cover do I need?
The general thumb rule on determining how much insurance cover you need – your insurance cover should not be less than 8-10 times your gross annual income. Your insurance cover increases with your age and also depends on factors such as number of dependents, financial requirement / need for minimum protection, etc. It is advisable to periodically review of your insurance needs as every individual is different and his/her financial needs are different and one set of rules cannot be applied to all.
Life Insurance is a very important and integral part of your future financial planning. To have a practical future financial planning:
- Have a financial goal
- Make a realistic financial plan to reach your financial goal
- Review your financial plan periodically and assess you insurance requirements.
The different types of life insurance policies:
Term Insurance Policy
The whole Life insurance plan covers risk for the entire life of the policyholder.It provides long-term financial protection to the dependents and is particularly useful as a means of protecting some of the expected wealth transfer that a parent would be aiming to make to his or her children when he or she dies.
Endowment Life Insurance Policy
The endowment insurance policy covers risk for a specified period and at the end the sum assured is paid back to the policyholder along with the entire bonus accumulated during the term of the policy. Endowment insurance policies work in two ways: they provide life insurance cover and serve as a tool for saving. They are more expensive than term and whole life policies. Endowment insurance can also be bought for shorter periods.
Money back Polices
Money back policies are quite similar to endowment insurance plans where the survival benefits are payable only at the end of the term period. The added benefit of money back policy is that they provide for periodic payments of partial survival benefits during the term of the policy as long as the policy holder is alive.
An additional and important feature of money back policies is that in the event of death at any time during the term of the policy, the death claim will be the full sum assured without deducting any of the survival benefit amounts.
Child Insurance policies are a combination of life insurance and investments. A small portion of the premium goes towards the life insurance of the parent while a large portion of the premium goes towards the investment. In the event of an untoward event happening to the parent, the premium paying period for the policy continues, future premiums waived and the child gets the sum assured and all the other benefits, bonus etc. at the end of the term.
Unit linked insurance plans combine the benefit of life insurance while serving as an investment tool. The premium comprises of two parts, first part goes for covering the life of the policy holder while the second goes towards the investment. Almost all insurance companies give their customers a choice of selecting the investment mix. They can opt for 100% equity funds or 100% debt funds or a mixture of both. The customers are also given the choice switching from one fund to another. The returns are directly related to the performance of the funds.